Fannie Mae 2010 Annual Report Download - page 276

servicers collect and hold cash that is due to certain Fannie Mae MBS trusts in advance of our requirement to
remit these amounts to the trusts, we recognize the collected cash amounts as “Restricted cash.”
We also recognize “Restricted cash” as a result of restrictions related to certain consolidated partnership funds
as well as for certain collateral arrangements.
Securities Purchased under Agreements to Resell and Securities Sold under Agreements to Repurchase
When securities purchased under agreements to resell or securities sold under agreements to repurchase
resulting from dollar roll transactions do not meet all of the conditions of a secured financing, we account for
the transactions as purchases or sales, respectively. We treat securities purchased under agreements to resell
and securities sold under agreements to repurchase as secured financing transactions when all of the conditions
have been met. We record these transactions at the amounts at which the securities will be subsequently
reacquired or resold, including accrued interest.
Investments in Securities
Securities Classified as Available-for-Sale or Trading
We classify and account for our securities as either available-for-sale (“AFS”) or trading. We measure AFS
securities at fair value in our consolidated balance sheets, with unrealized gains and losses included in
“Accumulated other comprehensive loss” (“AOCI”), net of applicable income taxes. We recognize realized
gains and losses on AFS securities when securities are sold. We calculate the gains and losses using the
specific identification method and record them in “Investment gains (losses), net” in our consolidated
statements of operations. We measure trading securities at fair value in our consolidated balance sheets with
unrealized and realized gains and losses included as a component of “Fair value losses, net” in our
consolidated statements of operations. We include interest and dividends on securities, including amortization
of the premium and discount at acquisition, in our consolidated statements of operations. When we receive
multiple deliveries of securities on the same day that are backed by the same pools of loans, we calculate the
specific cost of each security as the average price of the trades that delivered those securities. Currently, we do
not have any securities classified as held-to-maturity, although we may elect to do so in the future.
We determine fair value using quoted market prices in active markets for identical assets when available. If
quoted market prices in active markets for identical assets are not available, we use quoted market prices for
similar securities that we adjust for observable or corroborated (i.e., information purchased from third-party
service providers) market information. In the absence of observable or corroborated market data, we use
internally developed estimates, incorporating market-based assumptions when such information is available.
Other-Than-Temporary Impairment of Debt Securities
On April 1, 2009, we adopted the FASB modified standard on the model for assessing other-than-temporary
impairments, applicable to existing and new debt securities held by us as of April 1, 2009. Under this new
standard, an other-than-temporary impairment is considered to have occurred when the fair value of a debt
security is below its amortized cost basis and we intend to sell or it is more likely than not that we will be
required to sell the security before recovery. In this case, we recognize in the consolidated statements of
operations the entire difference between the amortized cost basis of the security and its fair value. An
other-than-temporary impairment is also considered to have occurred if we do not expect to recover the entire
amortized cost basis of a debt security even if we do not intend or it is not more likely than not we will be
required to sell the security before recovery. In this case, we separate the difference between the amortized
cost basis of the security and its fair value into the amount representing the credit loss, which we recognize in
our consolidated statements of operations, and the amount related to all other factors, which we recognize in
F-18
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)